CBA books $4.91 billion first-half cash profit

Commonwealth Bank of Australia delivered first-half cash earnings of $4.91 billion driven by stronger lending growth, better fee income and lower bad debts - although net interest margins continued  to be hammered by intense competition and high funding costs.

The update came as the country’s largest bank hit property investors with yet another rate hike. The lender will raise home loan interest rates for property investors with interest-only loans by 12 basis points.

Further, mortgage customers who have taken out a line of credit against their home will also have to pay a higher interest rate, up 4 basis points.

The solid cash profit - for the six months ended December 31- was up 6 per cent on the $4.63 billion posted for the immediately preceding period and up 2 per cent on the $4.81 billion for the year ago, same period.

The country’s largest bank easily beat the consensus estimates of $4.83 billion by a whopping one per cent.

Solid result

In a client note, UBS analyst Jonathan Mott described it as a "solid result with income momentum the key". Net interest income rose to $8.7 billion – a rise of 3 per cent compared to the immediately preceding half.

“Further, strong growth in fees and commissions and a gain from selling its remaining stake in Visa helped boost 'other banking income' by 22 per cent to almost $3 billion," Mott calculated.

However, CBA’s good income performance was marred by a 3 basis points fall in net interest margins, to 2.11 per cent. Importantly, since all eyes are on bank cost control, CBA’s cost-to-income ratio dropped to 41.5 per cent from 42.7.

Expenses jumped 9 per cent over the half although this figure was inflated by a write-off of capitalised software. Underlying costs were up 3 per cent - the same as for total volume growth.

CBA chief executive Ian Narev declared positive underlying “jaws” — which measures the growth of income against expenses. But by comparing the result to the previous first half, he is correct as costs increased by just 1 per cent and volumes rose 3 per cent.

“We have invested carefully but consistently over many years, leading to ongoing revenue and balance sheet growth, and continuous innovation for our customers,” Narev said.

“At the same time, our emphasis on productivity has ensured that expense growth is fit for the times. The story is to keep expense growth below income growth as we continue to invest."

Westpac, NAB, ANZ

CBA's bad debts dropped 3 basis points to 17 basis points, or $599 million. Asset quality was seasonally benign, with lower consumer and home loan arrears. Impaired loans stand at $3.4 billion versus $3.1 billion.

The flagship retail banking business logged a 9 per cent profit increase to $2.46 million for the half with the institutional bank delivering a 20 per cent increase to $568 million.

The wealth division looked dodgy when compared with the year-earlier half period as cash net profit dropped 34 per cent to $249 million. However, cash earnings were up 6 per cent over the immediately preceding half.

Of the other major banks, National Australia Bank first-quarter cash profit fell 1 per cent to $1.6 billion last week, although margins were steady. NAB reported negative “jaws” for the December quarter.

Australia New Zealand Banking group will provide its quarterly update on Friday, while Westpac Banking Corp will produce its half-year report in May.

Bendigo and Adelaide Bank this week booked a first-half profit of $225 million but solid lending growth was crushed by a steep 6 basis point drop in net interest margins.

CBA’s cash return on equity stands at 16 per cent.

CBA, result, profit
Elizabeth Fry,
Article Posted:
February 16, 2017

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